NCB says Government to miss 2014 deficit target
NCB economist Brian Devine said the combination of lower than expected growth and bigger budget cuts means it does not expect the Government to bring the deficit down to 3pc of GDP by 2014.
In a note to clients Mr Devine, an economist, said his firm expects cuts of €4bn per year to be targeted for each of the next four Budgets when the Government unveils its four year plan in November.
The research said proposals to reign in government spending over the next four years could help cut the cost of that rising debt burden, even as the National Debt is set to rise.
That's because a positive reception in the markets will see the yield demanded by lenders for that debt fall. NCB expects the EU to back the four-year budget.
NCB included a warning that markets had become exasperated by the constant revision of the cost of bailing out Ireland's banks.
It said the budget plan: "would be a positive if it is wholly transparent, credible and includes all banking costs on the balance sheet".
Mr Devine said: "The risk is that the Budget is none of the above, this is something we will monitor as details become clearer."
NCB has cut its expectations for growth in the economy next year dramatically, from an anticipated 3.3pc to just 1.9pc in 2011.
That comes as early data for the second half of the year suggests that the economy has begun to contract again in earnest, despite a good start to the year.
NCB says its own data suggests that in the three months to July the economy started to slow once again. It said PMI data showed that slowdown continued into August and September. Worryingly, the research showed growth in the crucial export sector slowed to 1.6pc in the three months to the end of July. Exports grew 7.1pc over the previous three months. Imports, meanwhile, have actually increased.
It means the impact of radically cutting government spending in order to meet the deficit target could be offset by a sustained slowdown in the economy. That would make targets on deficit reduction and to bring down the ratio of debt to GDP harder to reach.
NCB has cut its growth forecast for next year to 2.8pc for GNP and 3.3pc for GDP. It has revised its estimate for growth in the period out to 2014 down from 3pc to 2pc.
Mr Devine expect the national debt to hit 100pc of GDP in 2010 and to be as high as 111pc by 2013.
If the worst case estimates for the cost of the Anglo Irish Bank bailout are realised, debt could reach as high as 117pc of GDP in 2013, he said.